Should You Take Money Out of RRSPs to Pay Off Debt?

I’ve had a lot of inquiries about this lately, so I thought I would address it today. I’ve written about RRSP Basics and RRSPs vs. Paying Down Debt, but these articles dealt mainly with general issues and new contribution money. I haven’t directly addressed the question of whether or not you should actually withdraw money from existing Resgistered Retirement Savings Plans in order to pay down credit card or mortgage debt.

Most financial advisors would consider it blasphemous to even entertain the idea of taking money out of your RRSPs. Now this might have something to do with the fact that their assets under management and resulting commissions would take a hit, but there are some very good reasons to leave your retirement savings alone.  Read More…

This article has 12 Comments

  1. Moshe K.

    I like the point about “Interest Saved on Debt is Greater than the Tax Paid on RRSP Withdrawal”. I’ve been thinking about such an idea for a while but thought maybe i was missing something.

    My mortgage interest payments are continuing to decerase and so when i am at a point of taking out money from my RRSP i will actually be paying more on that than my mortgage each month. I think there will be a point when i will start withdrawing to pay my mortgage.

  2. Yandel Coleman

    The problem with tfsa accounts is that it limits contributions per year and when you withdrawal you cannot deposit that amount without penalties. It’s a different approach to savings than rrsps. they both have their uses.

  3. Willie Wilkinson

    Too much money in RRSP? One can only dream!

  4. Terrell K

    Does anyone remember when there was RSP and RRSP? Now its just RRSP.

  5. Emil R

    @donovan, it all depends. For most kids your age the income you will be making will be much less than when you become older and so in ways it might work against you.

  6. donovan

    Is it wrong to start saving while young? I’m 18.

  7. Ashton Webb

    You just to remember one thing: Your marginal tax rate is less at the time than when you put it in. Otherwise it was a waste of time since you will still be taxed at the same rate.

    This is why they call it “Retirement” since most people will have a lower marginal tax rate during retirement.

  8. Lachlan Osborne

    In some cases it might be best to put money into a TFSA instead of an RRSP. It depends on a person’s situation. So in ways having a RRSP might be just plain wrong.

  9. Kristian D.

    I haven’t even started saving and i am in my 40s 🙁

  10. Jorge V

    Thank goodness i dont carry any debt so i am all good. More savings for me.

  11. Flynn

    The only valid reason to withdrawal, at least in my eyes, is if you feel your current income is far less than what you expect it to be in the future.

    Recall that RRSPs are taxed at the marginal rate of its withdrawal period so its best to be making less at that point, not more.

  12. Xavier

    Excellent points to remember. Good read.

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